Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about
how to value your company. Essentially, valuating your company is super important. It’s really
all about making sure that you put the right price tag, so if you’re looking to seek
some financing or get your company acquired, you know that you have a valuation that is
going to make sense, and perhaps a valuation where the market is going to react positively.
So, with that being said, let’s get into it.
In terms of the different methods that you’re going to have, you’re going to have the
discounted cash flow, you’re going to have the Chicago Method, you’re going to have
the comparables in the market. I think that this is a great one because if you take a
look and, for example, you see your competitors have raised like x, y, and z, then what you
do is, you put yourself in the middle. So, for example, if we’re talking about valuations
that range between, let’s say, $15 million to $30 million. Basically, you would just
put yourself in the middle and say $25 million, and even if the investor is telling you that
perhaps the price is a little bit expensive, you can say, “Absolutely, but that is what
the market is paying.” So, it’s very tough to negotiate against that.
The other method that you’re going to find is the Venture Capital Model, which is benchmarking
on the potential returns that the business is going to be able to generate. Then, you
have the scorecard valuation method, which is taking a look and adjusting to what the
seed valuation is, such as also the region, the segment that the business is in, and certain
factors that are going to play a big part in getting that valuation.
The last one is the Risk Factor Summation, which grabs 12 characteristics of the business,
and as a result of that, you come up with a valuation that you establish on your business.
When it comes to frameworks, especially if you’re looking to raise money for a tech-enabled
company, hypergrowth business, there are different frameworks that you can use to guide you in
the journey of establishing a price tag in your business.
For example, at a pre-seed financing level, where you are taking in money for the very
first time, obviously, investors are not expecting revenues. Typically, what you’re raising
is between $200,000 all the way to $500,000. Typically, the valuation that you’re looking
at is $1 million to $2 million pre-money. Then you have the seed level. At this point,
really, what you’re going after is perhaps $500,000 or more, and what the investor is
going to be expecting is that you’re generating anywhere between $0 to $50,000 in revenue.
Here, the type of valuation you’re looking at, especially if you’re in the U.S. in
startup hubs like the East Coast or the West Coast, like New York or San Francisco, you’re
going to be looking at a potential valuation that is going to be around $2.5 million.
When you’re at a Series A level, what you’re raising is anywhere between $3 million to
all the way up to $15 million. The types of valuations that you’re going to be seeing
are anywhere from $15 million all the way up to $40 million. But here, the types of
revenues that the investors are going to expect are anywhere between $100,000 all the way
up to $250,000. When you’re at a Series B level, you’re
raising anywhere between $20 million, and it can go up all the way up to $50 million.
The types of valuations that you’re looking at can go all the way up to $100 million,
and in some instances, even further than $100 million.
At this stage in the game, the investor is going to expect to see anywhere between $250,000
in revenue all the way up to $1 million, and this is on a monthly basis. Again, on all
the previous frameworks that I talked about, remember that the revenue is always per month.
Now, there is a big difference between pre-money valuation and post-money valuation. Pre-money
valuation, at the end of the day, is the value that has been established by the investors
that are coming in your round right now. Essentially, for example, if it’s a $20
million pre-money valuation, and they’re investing, for example, $5 million, the post-money
valuation is essentially $25 million. So, pre-money valuation is before the money comes
in, and post-money valuation is after the money has been injected.
With that being said, hopefully, this video was helpful as you’re looking to establish
the valuation of your business. Don’t forget to hit the Like button underneath. Then, also
take a look at subscribing so that you don’t miss out on any of the videos that we’re
going to be rolling out. Then, also make sure that you leave a comment.
Then, don’t forget, as well, to check out the fundraising training, which is the program
where we help all the way from A to Z to founders for everything related to fundraising: live
Q&As, agreements, templates, a community of founders helping each other all around the
world, and you name it. I think it could be of tremendous value to you. Thank you so much
for watching.